Regulation of NZ insurance sector well under way

Release date

19 March 2013

Implementation of the Reserve Bank's regulatory regime for insurers is
well under way, with the aim of promoting a sound and efficient insurance
sector, the Reserve Bank's Head of Prudential Supervision Toby Fiennes
said today.

In a speech to the
Australasian General Insurance Exchange Conference in Sydney, Mr Fiennes said
that the new licensing regime is already resulting in a sounder insurance
sector.

"The requirement to obtain a licence means that insurers must all meet
certain minimum standards and this serves to reduce areas of high risk within
the sector," he said.

The Reserve Bank's regulatory regime is intended to reduce the risk of
an insurer failing, by promoting a sound and efficient insurance sector. Its
regulatory approach is based on principles of self, market and regulatory
discipline.

The regime includes requiring insurers to meet solvency standards, which
incorporate a catastrophe risk capital charge aimed at ensuring insurers can
adequately respond to a 1 in 500 year event. Insurers are also required to be
licensed, with the industry working towards a full licensing deadline of 7
September this year.

The recent Canterbury earthquakes had given the Reserve Bank first-hand
experience of catastrophes and these experiences were being built into the
regime, Mr Fiennes said.

"The prudential requirements of the Insurance (Prudential Supervision)
Act significantly reduce the likelihood of failure and provide the Bank with
appropriate tools to manage financial distress of an insurer.

"However and importantly, we do not run a zero failure regime, nor is
there any Reserve Bank or government guarantee against failure."

Mr Fiennes said the regulatory changes being put in place include increasing
access to information on an insurer's ability to pay claims, to help
policyholders make informed decisions when buying insurance.

This includes mandatory disclosure requirements by insurers in areas such as
solvency and the provision of financial strength ratings from approved agencies,
similar to the credit ratings provided for banks and non-bank deposit
takers.

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